Some companies with leveraged ESOPs might have to repay employees whose 401(k) assets went to pay down the loans used to purchase employer stock, if the Labor Department wins a new battle with the IRS. Most leveraged ESOP loans are repaid by employers using employer money only. The Labor Department now contends companies' use of employee money violates the exclusive benefit tenet of federal pension law. The IRS, in October 1994, ruled employee 401(k) plan contributions are treated as employer money under tax laws, and therefore may be used to pay down an ESOP loan. A Jan. 16 letter from Robert J. Doyle, Labor Department director of regulations and interpretations, to Evelyn Petschek, IRS director of the employee plans division, makes it clear the Labor Department disputes the IRS ruling. What's more, the Labor Department letter notes such use of employee retirement dollars to repay an employer's obligation also violate ERISA's self-dealing prohibitions. Richard A. Susko, an employee benefits lawyer and partner at Cleary, Gottleib, Steen & Hamilton, calls the Labor Department's position ``an attempt to quash employee money going into a leveraged ESOP.'' The U.K.'s Serious Fraud Office today said it would pursue additional charges against Kevin Maxwell and three Maxwell advisers, after losing an eight-month court battle last week on pension fund-related charges. Ian Maxwell, the late Robert Maxwell's second son, was not charged in the latest filing, which is not related to the pension funds. The latest round of charges relate to shares of Berlitz International Inc. belonging to MacMillan Inc., the U.S.-based publisher that formerly was part of the Maxwell empire. The government has alleged the shares were pledged fraudulently to Credit Suisse and Bayerische Vereinsbank AG as collateral for loans totaling 75 million made to the Mirror Group PLC. In addition, two counts allege Michael Stoney, a Maxwell adviser, falsified documents related to a 50 million loan to MGN Ltd. from Bankers Trust Co. Kevin Maxwell was angered by the second round of charges. ``I believe I am the victim of a political decision, taken by politicians in the runup to an election,'' he said.
The $527 million St. Louis Police Retirement System is undergoing an asset-liability study that probably will result in increased allocations to small-cap and international equities, said Stephen Olish, executive secretary. The system's current allocation is 45% large-cap equities, 5% small-cap equities, 5% international equities and 45% fixed income. Increased allocations probably would be given to existing managers, Mr. Olish said. Mississippi Valley Advisors manages its small-cap allocation, and Putnam manages its international allocation, Mr. Olish said. SEI is assisting with the study, which should be completed in February, he said. Trustees for the $460 million Chicago Park Employees' Annuity & Benefit Fund probably will add an active international equity manager once the fund finishes a search for minority and women-owned firms, said Joseph Fratto, executive director. The Chicago Park District had first considered the international search early last year but temporarily shelved it. The fund already has $10 million in indexed international equities with ANB Investment Management, he said. A search for two to three minority or women-owned managers should be completed in March, he said. The fund plans on investing a total of $25 million, and currently has two managers running $10 million. The fund's two incumbents, Abacus Financial and Holland Capital, may or may not be retained. Ennis Knupp is assisting the fund. The C$84 million (U.S. $61.3 million) Simon Fraser University union employee pension fund, Burnaby, British Columbia, is considering increasing its international allocation, now well below the 20% regulatory limit, said Alan Black, manager-pension and benefits.He said the timetable for making a decision was uncertain. The fund now has 5.6% of its assets in U.S. and non-North American equities. Trustees of the $445 million Kansas City (Mo.) Public School Retirement System hired two money managers to invest more than $85 million, confirmed Paul Ballard, executive director. Bankers Trust Global Investment Management will invest $37.5 million in a Russell 2500 index fund; Denver Investment Advisers will invest $48 million in a multistrategy bond portfolio. The money allocated to Bankers Trust comes from Weiss, Peck & Greer, which managed core small- and midcap portfolios for the fund; WP&G will continue to manage a large-cap core portfolio for the system, said Mr. Ballard. Denver's allocation will be funded from the termination of a core bond portfolio also managed by WP&G. A fixed-income study determined that the fund was underweighted in corporate bonds and that its core bond portfolio should be consolidated with one manager, Atlantic Portfolio Analytics & Management, Mr. Ballard sai
